In commercial real estate leasing today, the first tenant that you find to fill a vacancy in a property may not be the best tenant for the investment over the long term.
Ultimately you need to consider first and foremost the future of the property, the improvements within the asset, and the investment targets of the client. You can then choose the best tenant by type and market the property accordingly.
The marketing strategy behind the leasing requirement will allow you to drill down into the factors of attraction that apply to the vacancy. You want to attract the best tenants for the location.
So you will need some information to assess about the property, the client, and the local area. The depth and the strength of your research will help you match your services to the requirements of the client and the property
Before you lease the property and the vacancy understand the client first and foremost. The client as the landlord owning the property will have certain targets to recognize including the following:
- How long do they wish to hold the asset?
- What are the requirements of cash flow from the lease?
- Are there other tenants within the property to support the rental return?
- In any medium to large property, you will need to review the lease expiry dates, rental structures, and occupancy pressures before you lease any vacancy to a new tenant.
- Are there factors of renovation that need to be incorporated into the tenant mix and the lease structure?
- Are there factors of risk that need to be incorporated into the property performance plan and the overall leasing strategy?
- Has the client diversified their property portfolio across a number of different locations? Diversity brings with it other strategic factors to consider.
In answering all of these questions, you will have a reasonable idea of the best tenant by type and by location. Understand how the tenant will fit into the tenancy mix to strengthen the overall property profile and income return.
Subject to all of the previous questions raised, you can drill down into the best types of tenants that suit the asset and the investment targets of the client. A good tenant for an investment property will usually bring the following factors to the asset:
- Stability – Every tenant should be assessed for stability before you commit to lease negotiations. You will need to review their business history, other locations of occupancy, and talk to the key people.
- Income – Look at the levels of rental that apply in the local area. Will you be leasing the property on a gross or a net rental basis? What are the market rentals that apply respectively? How can you improve the income over time through rent review structures and strategies? How long should the lease be? All of these questions will impact the income for the asset. Answer the questions before you negotiate with the tenant.
- Profile – Some tenants will bring with them a business profile that is attractive to the property. A business brand or a business profile can bring a marketing advantage to the property. Some franchise brands also achieve the same enhancement.
Taking these three elements into account you can do something with your lease negotiation. You can give the landlord some solid reasons to negotiate effectively and directly with the chosen tenant. Most landlords will cooperate when it comes to attracting a new tenant in a stable and strong lease arrangement.
You can get more tips about commercial real estate brokerage in our eCourse ‘Snapshot’ right here.